APD: Highland and Islands exemption must be protected

The Scottish Government has proposed an alternative financial solution to the UK Government that would enable the Highlands and Islands to be exempted from Air Departure Tax (ADT) after the UK Government placed unacceptable conditions on notifying the exemption to the European Commission, Finance Secretary Derek Mackay has said.

An exemption from Air Passenger Duty for flights from the Highlands and Islands has been in place since 2001. Transferring the exemption to the new Air Departure Tax requires notification to and assessment by the European Commission under State Aid rules, in compliance with EU law.

In a statement to Parliament, Finance Secretary Derek Mackay said that the Scottish Government would not put the economies of the Highlands and Islands at risk and outlined an alternative proposal, which would use tax rates and bands to provide the same benefit for all Highlands and Islands flights including connecting flights.

Writing to the UK Government the Finance Secretary highlighted the flaws in the devolution of APD and called on the UK Government to act in line with the fiscal framework to ensure there is no detriment to the Scottish Government as a result of the costs required to enable the tax to be properly transferred.

The UK Government has suggested delaying the transfer of the tax indefinitely in the absence of a solution.

Mr Mackay said:

“We have set out a clear aim to reduce the burden of air passenger taxation by 50% and to abolish the tax altogether when resources permit. That commitment will both help to boost international connectivity and generate sustainable growth – priorities that are even more pressing as a result of the EU referendum.

“To match the exemption for all Highland and Island flights including connecting flights would require the Scottish Government to forego annual revenues of more than £320m.

“I have suggested that the UK Government agrees to amend the Block Grant Adjustment to enable the Scottish Government to deliver support for the Highlands and Islands in a way that ensures neither the Highlands and Islands or Scotland’s public finances suffer as a result of this apparent defect in Air Passenger Duty.

“I cannot see ADT put into operation with this significant uncertainty hanging over the Highlands and Islands. I therefore urge the UK Government to step up to the plate, to recognise their responsibilities and to support our proposal which would enable ADT to go forward as planned without causing harm to the Highlands and Islands economies.”